Question

In: Finance

SHOW ALL WORK LOAN PAYMENTS ARE MADE AT THE END OF EACH MONTH When Sarah Jean...

SHOW ALL WORK

LOAN PAYMENTS ARE MADE AT THE END OF EACH MONTH

When Sarah Jean purchased her house 12 years ago, she took out a 30-year mortgage for $220,000. The mortgage has a fixed interest rate of 6 percent compounded monthly.

(a) Compute Sarah Jean’s monthly mortgage payments.

(b) If Sarah Jean wants to pay off her mortgage today, for how much should she write a check? She made her most recent mortgage payment earlier today.

Solutions

Expert Solution

a.
Formula to calculate monthly payment
Monthly payment Loan amount/Annuity discount factor
Annuity discount factor [1-((1+r)^-n)]/r
interest rate is r and number of payments is n
Calculate monthly payment for new car
Monthly interest rate (r ) 0.005 6%/12
No of payments (n) 360 30*12
Monthly payment 220000/(1-(1.005^-360))/0.005
Monthly payment 220000/166.7916
Monthly payment $1,319.01
b.
In this case we will have to calculate present value of monthly payment with 18 years (30 years - 12 years) remaining to pay the loan
Loan amount Monthly payment*[1-((1+r)^-n)]/r
Loan amount 1319.01*(1-(1.005^-216)/0.005)
Loan amount 1319.01*131.90
Loan amount $173,974.77
Thus, Sarah will have to pay $173,974.77 if loan is repaid today.

Related Solutions

SHOW ALL WORK ALL LOAN PAYMENTS ARE MADE END OF THE MONTH Nona purchased a new...
SHOW ALL WORK ALL LOAN PAYMENTS ARE MADE END OF THE MONTH Nona purchased a new car earlier today for $32,000. She financed the entire amount using a five-year loan with a 3 percent interest rate (compounded monthly). (a) Compute the monthly payments for the loan. (b) How much will Nona owe on the loan after she makes payments for two years (i.e., after 24 payments)?
A loan of $30,000 is paid off in 36 payments at the end of each month...
A loan of $30,000 is paid off in 36 payments at the end of each month in the following way: Payments of $750 are made at the end of the month for the first 12 months. Payments of $750 + x are made at the end of the month for the second 12 months. Payments of $750 + 2x are made at the end of the month for the last 12 months. What should x be if the nominal monthly...
A 18 year loan is being repaid with level payments at the end of each month....
A 18 year loan is being repaid with level payments at the end of each month. The loan rate of interest is 15.6% compounded monthly. In which month is the interest portion approximately equal to 5 times principal the portion? Give an integer answer.
Payments on a $10000 loan are made quarterly in arrears (that is, at the end of...
Payments on a $10000 loan are made quarterly in arrears (that is, at the end of each quarter) for 10 years. The annual effective rate of interest is 7%. Find the principal outstanding after the 6th payment, and the amount of principal in the 14th payment (using the amortization method in both cases).
A 13-year annuity pays $1,400 per month, and payments are made at the end of each...
A 13-year annuity pays $1,400 per month, and payments are made at the end of each month. The interest rate is 12 percent compounded monthly for the first Five years and 11 percent compounded monthly thereafter. Required: What is the present value of the annuity? A) $1,343,944.86 B) $109,755.50 C) $111,995.40 D) $152,061.20 E) $114,235.31
A 15-year annuity pays $1,500 per month, and payments are made at the end of each...
A 15-year annuity pays $1,500 per month, and payments are made at the end of each month. If the interest rate is 10 percent compounded monthly for the first seven years, and 6 percent compounded monthly thereafter, what is the present value of the annuity?
A 17-year annuity pays $1,600 per month, and payments are made at the end of each...
A 17-year annuity pays $1,600 per month, and payments are made at the end of each month. The interest rate is 11 percent compounded monthly for the first six years and 9 percent compounded monthly thereafter.    What is the present value of the annuity? $153,407.29 $150,339.14 $156,475.43 $217,830.03 $1,840,887.45
A 13-year annuity pays $1,100 per month, and payments are made at the end of each...
A 13-year annuity pays $1,100 per month, and payments are made at the end of each month. The interest rate is 9 percent compounded monthly for the first five years and 6 percent compounded monthly thereafter. What is the present value of the annuity?
A 20-year annuity pays $2,100 per month, and payments are made at the end of each...
A 20-year annuity pays $2,100 per month, and payments are made at the end of each month. If the interest rate is 11 percent compounded monthly for the first ten years, and 7 percent compounded monthly thereafter, what is the present value of the annuity? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
A 12-year annuity pays $1,400 per month, and payments are made at the end of each...
A 12-year annuity pays $1,400 per month, and payments are made at the end of each month. The interest rate is 11 percent compounded monthly for the first six years and 10 percent compounded monthly thereafter. What is the present value of the annuity?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT